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Pip Value and Leverage 12 replies

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Pip Value & Leverage

  • #1
  • First Post: Nov 27, 2013 12:28pm Nov 27, 2013 12:28pm
Hi everyone!

Sorry for my english. I'm new in this world and I'm triying to learn everything i can. I have a question but before i comment the situation:

I have a demo account and i opened a position of 0.01 lots with a 100:1 leverage in EUR/USD, and I thought as a pip is 1 € when you trade with 1 lot, I trade with 0.01 lots, 1 pips = 0.01 € but I use a 100:1 leverage whats make 1 pip = 1 €. Thw surprise came when i checked my position and i had +12 pips but the profit was 0.87 €.

I don't know the reason. Can someone explain me this?

Thanks
  • #2
  • Nov 27, 2013 1:03pm Nov 27, 2013 1:03pm
Is it possible your demo account is funded in USD? that would make each standard lot = $1.00 USD per pip, not 1.00Euro -- so your 12 pips = 1.20USD.

Current exchange rate is +/- EUR/USD 1.356 Making your +12 pips worth 0.88euro after the theoretical exchange from your FX account to your Euro account.
  • #3
  • Nov 27, 2013 3:43pm Nov 27, 2013 3:43pm
No, my demo account isn't funded in USD but if I make 12 pips with a 0.01 lots and 100:1 leverage, the profit will be 12 EUR or 12 USD no?

Anyways i have another quiestion:
When you open a trade of 1 lots with a 10:1 leverage, are you trade with 100 € or are you trade 1 lot + 10:1 leverage = 10 lots?

Thanks
  • #4
  • Nov 27, 2013 3:53pm Nov 27, 2013 3:53pm
Quoting carlostedo
No, my demo account isn't funded in USD but if I make 12 pips with a 0.01 lots and 100:1 leverage, the profit will be 12 EUR or 12 USD no? Anyways i have another quiestion: When you open a trade of 1 lots with a 10:1 leverage, are you trade with 100 € or are you trade 1 lot + 10:1 leverage = 10 lots? Thanks
0.01 equals 10 dollar cents per pip or equivalent in your account currency. This is the same no matter what leverage you use. Leverage affects the amount of margin you need to put up to be able to open that trade. At 100 to 1 leverage you need $10 (or equivalent) to open a 0.01 trade.
Shampoo for my real friends
  • #5
  • Edited 7:00pm Nov 27, 2013 4:17pm | Edited 7:00pm
Quoting dannyrose
{quote} 0.01 equals 10 dollar cents per pip or equivalent in your account currency. This is the same no matter what leverage you use. Leverage affects the amount of margin you need to put up to be able to open that trade. At 100 to 1 leverage you need $10 (or equivalent) to open a 0.01 trade.
Actually, I think it depends on the quote price of the pair you are trading. For instance for my USD acct:

at 100:1 leverage to buy 0.01 lots (as of the time of this post) the margin required is...

EUR/USD -- $13.57 (bid price 1.35750)

GBP/USD -- $16.28 (bid price 1.62856)

CAD/JPY -- ??? $9.63 (bid price 96.396) or do I have to take into account the exchange rate to turn my USD into CAD?
  • #6
  • Nov 27, 2013 4:18pm Nov 27, 2013 4:18pm
Thanks you guys I understand.
  • #7
  • Nov 27, 2013 4:43pm Nov 27, 2013 4:43pm
Quoting TheChef
{quote} Actually, I think it depends on the quote price of the pair you are trading. For instance for my USD acct: at 100:1 leverage to buy 0.01 lots (as of the time of this post) the margin required is... EUR/USD -- $13.57 (bid price 1.35750) GBP/USD -- $16.28 (bid price 1.62856) CAD/JPY -- ??? $6.63 (bid price 96.396) or do I have to take into account the exchange rate to turn my USD into CAD?
You may be right about that but as a rule of thumb a 0.01 position is the same as buying $1000 of currency and so at 100:1 you will need $10 to open the trade. Jpy and chf pairs are different.
Shampoo for my real friends
  • #8
  • Nov 27, 2013 6:40pm Nov 27, 2013 6:40pm

That's a good rule of thumb I guess, but what about the poor undercapitalized S.O.B. who just received a margin call and is trying to figure out EXACTLY what his/her risk per trade will be?


remember that 0.01 lots is not $1000 -- it is 1000 UNITS of the base currency... so in GBP/CHF 0.01 lots is 1000GBP


@ carlostedo --( remember that the pips you make are in the BASE currency, not necessarily your home account currency currency)


You always have to change your account currency into the base currency for calculation. Look at the below example for a trader funded in USD looking to place a 0.01lot trade in GBP/CHF


For example, suppose:


Home Currency = USD
Currency Pair = GBP/CHF
Base = GBP; Quote = CHF
Base / Home Currency = GBP/USD = 1.6282 --(here is where you need to refer to the appropriate exchange rate for your account currency and BASE currency)
Units = 1000
leverage = 100:1

Then, margin used:
= (1.6282 * 1000) / 100
= 16.28USD

({BASE} / {Home Currency}) * units) / (margin ratio)


NOW LETS TAKE A LOOK AT MY CAD/JPY Example from post #5

home = USD
pair = CAD/JPY
base = CAD, quote = JPY
base/home = cad/usd (USD/CAD =1.0590 so we have to reverse it) <0.9410)
units = 1000
leverage = 100:1

Margin used

=(0.941*1000)/100
=$9.41

thanks guys, I learned something today
  • #9
  • Nov 27, 2013 6:53pm Nov 27, 2013 6:53pm
Margin requirements and pip value do fluctuate with price.
Leverage does not effect pip value but greatly effects margin.

There are big differences in currency pairs as to pip value
and margin requirement. (there are also account differences
but that's another topic).

So here's a handy-dandy margin calculator which shows pip
value as well.

http://www.forexrazor.com/en-us/tool...alculator.aspx
When the Joker is in the deck.. fear not and play it well
  • #10
  • Nov 27, 2013 7:02pm Nov 27, 2013 7:02pm
Quoting Slim Buffett
Margin requirements and pip value do fluctuate with price. Leverage does not effect pip value but greatly effects margin. There are big differences in currency pairs as to pip value and margin requirement. (there are also account differences but that's another topic). So here's a handy-dandy margin calculator which shows pip value as well. http://www.forexrazor.com/en-us/tool...alculator.aspx
thanks Slim, that's going to come in handy.
  • #11
  • Nov 28, 2013 1:29am Nov 28, 2013 1:29am
Quoting carlostedo
Hi everyone! Sorry for my english. I'm new in this world and I'm triying to learn everything i can. I have a question but before i comment the situation: I have a demo account and i opened a position of 0.01 lots with a 100:1 leverage in EUR/USD, and I thought as a pip is 1 € when you trade with 1 lot, I trade with 0.01 lots, 1 pips = 0.01 € but I use a 100:1 leverage whats make 1 pip = 1 €. Thw surprise came when i checked my position and i had +12 pips but the profit was 0.87 €. I don't know the reason. Can someone explain me this? Thanks
At a 1:100 leverage, a lot size of 0.01 will yield 0.1/pip

12pips*0.1= 1.2 minus the spread and the 0.87 figure should be correct

Danny
  • #12
  • Nov 28, 2013 10:51pm Nov 28, 2013 10:51pm
In case you are still not sure, you can use margin calculator, pip value calculator to work out the P/L ..
  • #13
  • Edited 6:43am Feb 3, 2017 5:18am | Edited 6:43am
Hello !

I'm new at Forex, I don't understand a thing. Can you explain me, please? I use a demo account and I've this situation:
I used a leverage by 1:1000, size 0.01 and a T/P at 100 pips. Profit was around 0.94$. After that, I changed the leverage to 1:500, same size by 0.01, same T/P by 100 pips and the profit was the same (0.94$). It shouldn't be twice less because now leverage is twice less, from 1000 to 500?
So, doesn't matter if account is 1000$ or 10 000$ or if the leverage is different, if you've the same size, you make the same profit?

I know it is a stupid question, but I'm a newbie and I'm a bit confused about this situation. What I understood from reading I wrote above, but looks like I don't understood it right.
  • #14
  • Feb 13, 2017 10:29am Feb 13, 2017 10:29am
SimaA , its confusing for all at the beginning. The winning or losing of pips doesn’t depend on the leverage. It’s the Volume Size , so with the 0.01 Lots you will always get the same result for 100 pips profit. Leverage comes in play while you open the trade. With 1:1000 leverage you will need twice less margin to open this trade as with 1:500. For example to open 0.01 lots with 1:1000 leverage the required margin will be 1 USD , whereas with 1:500 it will be 2 USD. I presume your account is in USD
  • #15
  • Feb 15, 2017 12:57am Feb 15, 2017 12:57am
Like Dwain said leverage does not change the value of a Pip it is only the position size. In fact what you are referring to with the 1;1000 and 1:500 is the maximum leverage you have set at your brokers for your account. So by lowering your leverage you do not change your position size you just increase your capital needed to open that postion.

Basically higher leverage just lets you open bigger lot sizes with the same amount of capital. So if you did wanted to double the size do not cut your maximum allowed leverage but double your lot size.
  • #16
  • Jun 1, 2017 7:20am Jun 1, 2017 7:20am
The higher leverage always brings profit very rapidly if there is sufficient trading balance as well proper trading plan . but traders always use higher leverage devoid of exact money managing pan , as a result they become loser when trading practically.
  • #17
  • Last Post: Jun 5, 2017 3:52pm Jun 5, 2017 3:52pm
When i was a newbie in Fx I used 1:1000 leverage due to emotions , I thought it can bring profit very rapidly , now I am using only 1:200 for avoiding risk , because I know how much risk carry on the leverage.
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